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Strategic Managament Process
Strategic Managament Process
The ways that strategies are created and realized differ. Thus, there are many different
models of the process. The models vary between companies depending upon:
Organization’s culture.
Leadership style.
The experience the firm has in creating successful strategies.
All the examples of the process in this article represent top-down approach and belong
to the ‘design school’.
Initial Assessment
Situation Analysis
Strategy Formulation
Strategy Implementation
Strategy Monitoring
Initial Assessment
Components: Vision statement & Mission statement
Tools used: Creating a Vision and Mission statements.
The starting point of the process is initial assessment of the firm. At this phase
managers must clearly identify the company’s vision and mission statements.
Business' vision answers the question: What does an organization want to become?
Without visualizing the company’s future, managers wouldn’t know where they want to
go and what they have to achieve. Vision is the ultimate goal for the firm and the
direction for its employees.
Situation Analysis
Components: Internal environment analysis, External environment analysis and
Competitor analysis
Tools used: PEST, SWOT, Core Competencies, Critical Success Factors, Unique
Selling Proposition, Porter's 5 Forces, Competitor Profile Matrix, External Factor
Evaluation Matrix, Internal Factor Evaluation Matrix, Benchmarking, Financial Ratios,
Scenarios Forecasting, Market Segmentation, Value Chain Analysis, VRIO Framework
When the company identifies its vision and mission it must assess its current situation in
the market. This includes evaluating an organization’s external and internal
environments and analyzing its competitors.
During an external environment analysis managers look into the key external forces:
macro & micro environments and competition. PEST or PESTEL frameworks represent
all the macro environment factors that influence the organization in the global
environment. Micro environment affects the company in its industry. It is analyzed using
Porter’s 5 Forces Framework.
Strategy Formulation
Components: Objectives, Business level, Corporate level and Global Strategy Selection
Tools used: Scenario Planning, SPACE Matrix, Boston Consulting Group Matrix, GE-
McKinsey Matrix, Porter’s Generic Strategies, Bowman’s Strategy Clock, Porter’s
Diamond, Game Theory, QSP Matrix.
Business level strategy. This type of strategy is used when strategic business
units (SBU), divisions or small and medium enterprises select strategies for only
one product that is sold in only one market. The example of business level
strategy is well illustrated by Royal Enfield firms. They sell their Bullet motorcycle
(one product) in United Kingdom and India (different markets) but focus on
different market segments and sell at very different prices (different strategies).
Firms may select between Porter’s 3 generic strategies: cost leadership,
differentiation and focus strategies. Alternatively strategies from Bowman’s
strategy clock may be chosen (Johnson, Scholes, & Whittington, p. 224[6]).
Corporate level strategy. At this level, executives at top parent companies
choose which products to sell, which market to enter and whether to acquire a
competitor or merge with it. They select between integration, intensive,
diversification and defensive strategies.
Global/International strategy. The main questions to answer: Which new markets
to develop and how to enter them? How far to diversify? (Thompson and Martin,
p. 557[2], Johnson, Scholes, & Whittington, p. 294[6])
Strategy Implementation
Components: Annual Objectives, Policies, Resource Allocation, Change Management,
Organizational chart, Linking Performance and Reward
Tools used: Policies, Motivation, Resistance management, Leadership, Stakeholder
Impact Analysis, Changing organizational structure, Performance management
Even the best strategic plans must be implemented and only well executed strategies
create competitive advantage for a company.
At this stage managerial skills are more important than using analysis. Communication
in strategy implementation is essential as new strategies must get support all over
organization for effective implementation. The example of the strategy implementation
that is used here is taken from David’s book, chapter 7 on implementation[5]. It consists
of the following 6 steps:
The first point in strategy implementation is setting annual objectives for the company’s
functional areas. These smaller objectives are specifically designed to achieve financial,
marketing, operations, human resources and other functional goals. To meet these
goals managers revise existing policies and introduce new ones which act as the
directions for successful objectives implementation.
Strategy Monitoring
Components: Internal and External Factors Review, Measuring Company’s
Performance
Tools used: Strategy Evaluation Framework, Balanced Scorecard, Benchmarking
Usually, tactics rather than strategies are changed to meet the new conditions, unless
firms are faced with such severe external changes as the 2007 credit crunch.
The key element in strategy monitoring is to get the relevant and timely information on
changing environment and the company’s performance and if necessary take corrective
actions.
Stages
Strategy Formulation
Strategy Implementation
Strategy Evaluation
Steps
Benefits
Indicates all the major steps that have to be met during the process.
Illustrates that the process is a continuous activity.
Arrows show the two way process. This means that companies may sometimes
go a step or two back in the process rather than having to complete the process
and start it all over from the beginning. For example, if in the implementation
stage the company finds out that the strategy it chose is not viable, it can simply
go back to the strategy selection point instead of continuing to the monitoring
stage and starting the process from the beginning.
Drawbacks
Represents only strategy formulation stage and does separate situation analysis
from strategy selection stages.
Confuses strategy evaluation with strategy monitoring stage.
Stages
Analysis
Formulation
Implementation
Steps
1. Initial analysis
2. External and internal analysis
3. Business or corporate strategy formulation
4. Implementation
Benefits
Drawbacks
Stages
Steps
Benefits
Indicates all the major steps that have to be met during the process.
Shows that the process is a continuous activity.
The model is supplemented by 4 fundamental strategic management questions.
Drawbacks
On the other hand, when implementing the strategic plan, the actual results do not meet
the requirements of the strategic plan so the plan has to be altered or better methods for
the implementation have to be discovered. This means that some parts of strategic
management process have to be done simultaneously, which makes the whole process
more complex.